Treasury

Electricity Generation: Taxation

Lord Teverson: To ask His Majesty's Government what assessment they have made of the likelyimpact of the Electricity Generator Levy on new investment into the renewables sector.

Lord Teverson: To ask His Majesty's Government what plans they have to amendthe Electricity Generator Levy so that new investments in renewable electricity generation infrastructure are exempt from its scope.

Lord Teverson: To ask His Majesty's Government whetherthe effective term of the Electricity Generator Levywill be reviewed now that consumer energy bills have started to decline.

Baroness Penn: For the purposes of the EGL, extraordinary returns are defined as revenues from selling electricity for a period at an average price of more than £75/MWh. This is approximately 50% more than the average price of electricity over the last decade. To ensure that it continues to represent a measure of exceptional revenues that exceed expectations, the benchmark price is indexed to the Consumer Prices Index (CPI) from April 2024 and costs of fuel which have increased by a similar degree to the price of wholesale electricity can be deducted from EGL liabilities. The EGL is legislated to end on 31 March 2028, which reflected the possibility that wholesale electricity prices could stay elevated for several years and the need for businesses to have certainty around the measures the UK would be taking in response. Agreements to provide electricity to a customer at a pre-agreed price for a number of months or years mean that generators may continue to realise exceptional receipts resulting from the peak in electricity prices, even if wholesale prices are subsequently lower. It is important to note, that despite the decline this year, electricity prices still remain high compared to the previous decade. Should the crisis abate, and prices fall below the benchmark price, the revenue forecast from the levy will not materialise and consideration would be given to the tax’s ongoing application. The Government keeps all tax policy under review, including the EGL. The Government will of course pay particular attention to the impact of measures brought in to respond to the recent spike in wholesale electricity prices. The Government intends that the Levy’s application does not discourage investment in new merchant renewables projects. The Government actively monitors the effects of the application of the EGL and has invited industry to share evidence on the impact of the measure. These insights continue to inform our ongoing assessment of the impact of the Levy.